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The International Situation and the Debt : The new challenges facing CADTM
by Eric Toussaint
27 August 2007

Increase in foreign exchange reserves

Since 2004, the economic situation has been characterised by the high price of raw materials and a number of agricultural products. This has allowed a large number of developing countries to increase their export revenues and accumulate significant foreign exchange reserves, especially countries which export oil, natural gas and minerals. Some agricultural exporters have also benefited from this favourable situation. However, not all the developing countries are included in this scenario; some sub-Saharan African States have seen their situation take a turn for the worse.

In 2007, the developing countries together hold over 3 trillion dollars [1] in foreign exchange reserves while the industrialised countries hold only half this sum. This favourable situation has been seized by a significant number of governments to pay off in advance all or part of their debts to the IMF, the World Bank, the Paris Club and private banks. Some have created development funds, into which they can place some of their foreign reserves, in view of financing social and infrastructure projects [2]. Seven South American countries (Argentina, Bolivia, Brazil, Ecuador, Paraguay, Uruguay, and Venezuela) are negotiating the creation of a Bank of the South to finance their regional integration and social projects. Some among them are also contemplating the creation of the Bank of ALBA (Cuba, Haiti, Nicaragua and Venezuela). The signs of a divorce from the World Bank and the IMF are increasing: Ecuador expelled the World Bank representative at the end of April 2007, Venezuela is thinking of leaving the World Bank and the IMF, Bolivia does not recognise the authority of ICSID (International Centre for Settlement of Investment Disputes, a subsidiary of the World Bank) anymore.

Crisis of legitimacy for the World Bank and the IMF

Meanwhile, the World Bank and the IMF are suffering a crisis of legitimacy. Paul Wolfowitz, the president of the World Bank since 2005, was forced to resign in June 2007 on charges of nepotism. While many member countries of the World Bank argued for the appointment of a citizen from the South to the presidency, the US president has chosen a US citizen for the eleventh time to head the Bank. At the beginning of July, it was the turn of the managing director of the IMF, the European Rodrigo de Rato, to unexpectedly announce his resignation. The European states agreed to replace him with a Frenchman, Dominique Strauss Kahn. These recent events confirm, in the eyes of the population of developing countries, that the US and European governments want to keep total control of the two multilateral financial institutions, while another European, Pascal Lamy, presides the WTO. In brief, both the circumstances of Wolfowitz’s resignation and the appointments of the new heads of the financial institutions responsible for the orientation of globalisation, demonstrate to the governments and populations of the whole world that good governance becomes relative when it comes to the distribution of power at the international level.

The new international architecture and the Southern banks

This adds urgency to the need to build a new international institutional architecture which would lead to a thorough democratic reform of the United Nations and the substitution of the World Bank and the IMF by democratic institutions. Achieving the construction of this new architecture will require the creation and reinforcement of South-South regional integration, the establishment of one or several Southern Banks which would have to coordinate their actions, and the setting up of compensatory [3] exchange mechanisms which are mutually beneficial between developing countries. Such exchange mechanisms have already yielded interesting results particularly in Latin America and the Caribbean: improved health care, energy security (e.g. Petrocaribe), education, and information (the development of Telesur).

The debt crisis is not resolved

These new developments, important as they are, must not blind us from the reality of the debt: each year, the governments of developing countries pay over 240 billion dollars to their debtors, which is equivalent to over three times the amount they need to reach the Millennium Development Goals (MDGs).
Debts to the IMF and the World Bank remain very high and, realistically, unsustainable for a considerable number of countries where the majority of the population live below the absolute poverty line. These organisations, though weakened and lacking legitimacy, pursue policies which favour the privatisation of water, electricity, health, education and culture, even though these policies are making the weak economies even more vulnerable.

Massive increase in domestic public debt

A recent development which also has to be considered is that the domestic public debt is increasing rapidly. In 1998 the internal and external debts were equal, in 2006 the domestic public debt exceeded the external debt by a factor of three [4]!
This phenomenon is very important: from now on, it is no longer possible to measure the level of debt of developing countries on the basis of the external debt. Most of the measures of sustainability designed by the financial institutions are obsolete. The domestic public debt must be added to the external debt to measure the impact of indebtedness on public finances and the economy. It is even more important now that an increasing part of the domestic public debt is being bought by foreign creditors [5].

Increase in indebtedness of private firms

We must not lose sight of the increasing indebtedness of private firms of developing countries. Since the raw material-exporting countries are witnessing an upturn in their fortunes, the private banks of the most industrialised countries have multiplied the loans to the private companies of developing countries. The two private sectors which are indebting themselves most in developing countries are the banks and the firms dealing with hydrocarbons and raw materials. We must pay particular attention to this development: the private banks of the developing countries are borrowing from the North at low interest rates in order to lend this money on the domestic market at a higher rate. If the economic situation suffers a downturn (which is likely in the coming years), we might witness a number of bankruptcies of private banks of developing countries, just like the financial crises which hit Mexico in 1994-1995, the countries of South-East Asia and South Korea in 1997-1998, Ecuador in 1998-1999 and Argentina in 2001. Today’s private debt of banks might become tomorrow’s public debts, hence, the need for control of private sector indebtedness. The same applies to the sector of hydrocarbons and minerals. Private petroleum, gas and mineral companies, take out loans to increase their production capacity in order to take advantage of the high price of raw materials. If the prices drop, the investments made through borrowing, might turn out not to be profit-making and the debt would become impossible to repay. It is imperative to limit and control this indebtedness.

New wave of indebtedness in the areas of extractive industries, energy mega-projects, and the exploitation of tropical forests

Alongside other actors, the World Bank plays an active role in the development of mining, petroleum and natural gas projects, as well as in energy mega-projects (massive dams) and the exploitation of forests. The CADTM and other citizen movements have detected a number of offences in relation to these projects, from the non-respect of the rights of populations directly affected by these developments to crimes against humanity such as the massacre at Kilwa in Katanga in 2004 [6].

Uncontrollable growth of Credit Default Swaps (CDS)

New financial products have become more widespread, namely the Credit Default Swaps (CDS). CDS are bought to protect against the risk of the non-payment of a debt. The market for CDS has multiplied by a factor of 11 in the last five years [7]. The problem is that these insurance contracts are sold without any regulatory control from the public authorities. The existence of these CDS is encouraging companies to take increasing risks. Believing that they are protected against non-payment, the lenders give out loans without verifying the ability of the borrower to pay. However, if the international economic situation deteriorates, tens or hundreds of borrowers could suddenly become bankrupt, in which case the CDS would become valueless pieces of paper as the insurers would be incapable of honouring their engagements.

Capital flight and profit repatriation towards the North versus the movement of migrants’ remittances towards the South

Capital flight and brain drain from the developing countries to the most industrialised countries have grown over the last few years. The amount of profits repatriated towards the ‘parent company’ has multiplied by a factor of 4.5 between 2000 and 2006 (from 28 billion in 2000 to 125 billion in 2006) [8]. Moving in the other direction, are the remittances migrants send to their native countries, which have also increased. Remittances, as the World Bank has acknowledged, are much higher than development aid.

Increase in prices of food

The price of food is rapidly increasing. The main reason is due to two factors.

Firstly, there is the decision of many governments and multinational companies to develop the production of biofuels, such as ethanol which is produced from sugarcane, maize, colza or other plants. Nowadays, 20% of US maize is used to produce ethanol, and 50% of the sugarcane in Brazil! [9] The rise in price of maize had repercussions in Mexico with the increased cost of tortillas. This is an example of the devastating effect of free-trade treaties. In fact, in 1994, a free trade agreement between the US, Canada and Mexico (NAFTA) was signed. Once NAFTA was in place, US agro-business flooded the Mexican market with cheap US maize, selling it at a price that was below the cost of production of the small Mexican farmers, thousands of whom subsequently lost their jobs (and have since tried to emigrate to their rich Northern neighbour). Since 2006, the price of maize exported by the US has largely increased because of the demands linked to the production of ethanol. Consequently, the price of food went up in Mexico since maize is the main staple food. The Mexican peasants that used to produce the maize are not there anymore to respond to the demand. They have either sold their land and emigrated to the cities or the US or they are crippled by debt and have difficulties to start growing crops again.

A second phenomenon worsens the food situation of the poorest. The big grain companies based in the most industrialised countries with moderate climates have reduced, in 2006 and in 2007, their area of cultivation of cereals, thus causing a hike in cereal prices on the world market. This was a risky venture as it had the potential to cause severe food shortages in Africa and other continents who have along the years become net importers of cereals since institutions such as the World Bank have encouraged them to prioritise the cultivation of tropical products (cocoa, coffee, tea, nuts, etc.). Today, the World Bank is ringing the alarm bells when it notices that cereal prices have doubled late 2006-early 2007. The World Bank predicts the continued increase in the price of maize, wheat, rice and other staple foods as a consequence of the increase in the production of biofuels [10]. Because of this, the number of people living in absolute poverty is likely to increase and a severe food crisis might occur. Moreover, the external debt of the poorest countries might equally rise due to the higher import bill for foodstuff.

Broken promises of the rich countries

The promises made by the rich countries in 2002 at the UN conference in Monterrey in terms of development have been broken [11]. It is impossible to see how the rich countries, starting with G8 members, will be able to increase their aid to Africa to 50 billion before 2010 (as promised by G8 leaders at Gleneagles in 2005). To achieve this target, they will have to increase their aid budget by 16% each year.

Increase in South-South loans and the increasing presence of China

Some private banks of some developing countries (China, India, Malaysia, South Africa) are increasingly granting loans to governments or other firms of developing countries. The loans of Chinese public banks to Africa are rising sharply. From 2004-2006, the Chinese banks loaned 2 billion dollars to developing countries for work in the petroleum and natural gas [12]. China, as well as India and South Africa, are in need of raw materials, and see their loans as guaranteeing that supplies continue to flow. The most vulnerable countries risk exchanging one sort of dependence on the most industrialised countries to another which will not be necessarily better. We must also note the rise of powerful private or public firms of the South (Petrobras, Petronas, PDVSA, CNOOPC, to take only oil companies as example).

Increased spending on arms

A new arms race has started in the beginning of the 21st century under the impetus of the US. The amount spent on weapons by Washington is rising sharply and accounts for half the global spending. China will increase its spending on arms by 18% in 2007. The US has recently given massive bilateral loans to its allies to spend on weapons. This threatens a new rise in external public debt linked to buying arms.

What are the implications of the new international situation for CADTM?

The CADTM, has to adapt its analysis to the new reality. For example, in the book Who owes who? [13] (50 questions/50 answers on the debt, the IMF and the World Bank) written in 2002, the authors have deliberately left out the question of domestic public debt. When the authors completely rewrite this reference book [14], they have to fully incorporate the growth of domestic public debt and its implications. Equally, Eric Berr and François Combarnous, the creators in 2005 of alternative ratios to those of the World Bank for the measurement of the impact of indebtedness, must take note of the new situation and adapt their tools of measurement (available on the site of the IDO - ). This will be addressed during the seminar of the IDO in Namur on 15/16/17 October 2007.

Equally, all those who have invested themselves in the audit of the debt will have to take into account the impact of the domestic public debt. The Ecuadorian authorities have already grasped the issue. In July 2007, the president Raphael Correa created a joint auditing commission for domestic and external public debt. The CADTM, Jubilee South, Eurodad and Latindadd have been directly involved in the work of this commission [15] , together with six representatives of the Ecuadorian social and citizen movements.

An analysis of the development of the debt of private companies is also important, because if we are not careful, public finances will have to pick up the tab for any bankruptcies and non-repayments, creating an additional burden for the population.

It is imperative to repudiate the idea that public debt is under control. New forms of indebtedness must be analysed as well as the new lenders.

In 2008, CADTM Belgium will continue with its work, started in 2007, on the audit of the debt of Ecuador [16], the DRC, Mali and other countries where the social movements wish to start such an audit.

Also in 2008, the CADTM will audit the repayments demanded by the most industrialised countries to the countries of the South, namely towards Ecuador and the DRC. The CADTM will work on this project, in close collaboration with Eurodad, the Observatory on Debt and Globalisation, ATTAC-CADTM Japan and other movements of the North who are willing to take on this task.

Considering the importance of the new loans in the area of extractive industries, of energy mega-projects and forest exploitation and considering the numerous offences observed by the CADTM and other citizen movements, offences in which the World Bank is sometime directly involved, the CADTM will continue its efforts to see that legal actions are brought about.

In relation to the new financial architecture that is being built, we must make sure that the proposed Banks of the South respect democratic and transparent criteria (one country = one vote; the institution and its officials will not have legislative imunity; access to the archives for auditing; an obligation for accountability to the parliaments and public opinion), and that their actions help to make the international treaties on fundamental human rights applicable by means of their contribution to improving the living conditions of their populations. The beneficiaries of loans or donations have to be public bodies, small producers, and communities. The projects that the Bank will support must respect the environment. The Bank will have to avoid, as far as possible, financing its projects on the capital market. Together with other debt campaigns, in June 2007, the CADTM sent an open letter to the presidents of South American countries that are uniting to create the Bank of the South. We must pursue this call and attentively follow the construction process of this new financial institution.

The job is enormous, and the challenge gigantic. To attain these lofty ambitions, we must reinforce collaboration and create a unified action of all the organisations which work towards a just solution for the problem of the debt. The international CADTM network will reinforce its collaboration with the other movements that campaign on the debt problem: Jubilee South, Eurodad, Latindadd, Afrodad and all the national organisations, whether or not they are part of an international network. The CADTM will continue to help towards the consolidation of the International Debt Observatory which provides a common framework of reflection for all these movements.

The CADTM will continue its actions in the context of the World Social Forum and the global coordination of social movements so as to guide the action of the global justice movement toward real alternatives and means of actions that are adapted to respond to the challenge of the debt and all forms of oppression.

Translated by Diren Valayden

Footnotes :

[1The value of foreign exchange reserves is calculated in dollars, the main international currency of foreign exchange reserves, although in fact, the reserves are also made up of other currencies: euros, yens, sterling, Swiss francs…Worldwide reserves for 2007 are 2/3 in dollars. ¼ in euros and the rest in other strong currencies. (See Bank for International Settlements, Annual Report 2007, Bale, p.97)

[2This is the case of Venezuela, Russia, China. The Norwegian government has done the same thing to maximise the returns on petroleum. (See Bank for International Settlements, ibid, p. 104.)

[3See the types of exchanges between Bolivia, Venezuela and Cuba in 2007-2007 particularly in the area of hydrocarbons, the transfer of technology, health and education.

[4World Bank, Global Development Finance 2007, Washington DC, p. 46.

[5More and more foreign investors are buying bonds issued on the public debt as they have a higher yield! In 2006, the ‘foreigners’ bought 9 billion worth of domestic bonds of the developing countries. See World Bank, Global Development Finance 2007, Washington DC, p. 46.

[6See Myriam Bourgy, « Le massacre de Kilwa : Anvil Mining et l’Agence Multilatérale de garantie des investissements, complices de crimes de guerre », in A qui profitent toutes les richesses du peuple congolais ? Pour un audit de la dette congolaise, edited by the CADTM, 2007,

[7World Bank, Global Development Finance 2007, Washington DC, p. 83-84.

[8World Bank, Global Development Finance 2007, Washington DC, p. 53.

[9World Bank, Global Development Finance 2007, Washington DC, p. 25.

[10World Bank, Global Development Finance 2007, Washington DC, p. 30-32.

[11World Bank, Global Development Finance 2007, Washington DC, p. 55-56.

[12World Bank, Global Development Finance 2007, Washington DC, p. 55-56.

[13Damien Millet and Eric Toussaint, Who owes Who? 50 questions about World Debt , Zedbooks, London (2004); Debt Scam (2003) by Vak, Mumbai

[14It has been published in 7 languages (including Arabic, Korean, and Japanese) in 14 different editions. Damien Millet and Eric Toussaint are currently writing a completely new version of the book which should be published in French at the beginning of 2008.

[15Eric Toussaint, who was part of the commission, was in Ecuador to work on the audit of the debt with Ecuadorian social movements, the Quito authorities and his international colleagues.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.